FedEx cost containment spurs strong profit growth

Peak season shipping and lower fuel costs helped the integrator’s margins.    FedEx reported strong profit in its third quarter ended Feb. 28, as business soared across all segments during the peak holiday season, much of it due to online shoppers. The express delivery and integrated logistics giant achieved 53 percent growth in net income to $580 million and operating profit of $962 million, up 50 percent, from the same period last year.
   The Memphis, Tenn.-based company said it was able to meet customer delivery expectations despite a demanding quarter that included pre-shipping ahead of the Chinese New Year, difficult winter weather and the labor disruptions at West Coast ports.
   Profit growth can mostly be attributed to lower costs and productivity enhancements, as revenue increase was nominal, according to FedEx’s financial statement. Profits were buoyed by lower expenses for fuel as oil prices slumped, fewer weather-related disruptions than last year and reduced pension costs.
   Revenue grew 4 percent to $11.7 billion, but was impacted by lower fuel surcharges. And the strong dollar also held back gains in international revenue. Officials trimmed back the top range of their full-year profit forecast due to the dollar headwinds.
   FedEx Express, which includes the company’s airline operation, more than doubled its operating margin to 5.8 percent and operating income by 129 percent, mostly due to significant reduction in expenses. U.S. domestic package and international volume both grew 4 percent, while international priority volume was flat. The carrier had more time-definite freight coming from Asia to the United States because shippers sought last-minute alternatives to get around the bottlenecks at the West Coast ports, Express President David Bronczek said on an earnings call with analysts.
   Revenue for FedEx Ground was up 12 percent as volume grew 7 percent on the strength of both business-to-business and home delivery service. The company is also making more money on each package due to dimensional weight pricing, a new size-plus-weight price structure for ground packages that began in January. Average daily volume for FedEx SmartPost, the low-weight shipping option that uses the U.S. Postal Service for final delivery, decreased 7 percent due after Amazon took much of its business in-house and injected shipments into USPS delivery centers itself.
    FedEx completed the acquisition of third-party logistics provider GENCO during the quarter. The acquisition is expected to further boost the company’s capability in e-commerce, packaging and reverse logistics and complement the transportation side of the company. FedEx Ground President Henry Maier said GENCO could push significant volume to the FedEx transportation network and that integration of the companies will take about 12 to 18 months.
   FedEx Freight experienced a 94 percent jump in operating profit and 6 percent growth in revenue to $1.43 billion, as less-than-truckload daily shipments increased 3 percent and revenue per shipment grew 3 percent due to higher rates.
   Company officials forecast moderate growth in the global economy, of 2.8 percent this year and 3.1 percent next year. The United States is expected to lead the way with 3.1 percent growth for 2015 and 2016. The company expects industrial production growth of 3.8 percent this year and 3.6 percent in 2016.